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Oshkosh 3Q Income, Sales Drop

July 29, 2014

Oshkosh Corporation reported fiscal 2014 third quarter results, with overall sales and income dropping due to a decline in activity in the company's defense segment. However, the company's access equipment and commercial segment third quarter sales and income each increased year-over-year.

The company reported net income of $105.1 million, compared to $148.4 million in the third quarter of fiscal 2013. Fiscal 2014 third quarter adjusted net income was $105.7 million, excluding an after-tax other post employment benefits (OPEB) curtailment gain of $6.2 million related to workforce reductions in the company’s defense segment and after-tax costs of $6.8 million resulting from a reduction in eligible OPEB costs under historical cost-plus government contracts.

Consolidated net sales in the third quarter of fiscal 2014 were $1.93 billion, a decrease of 12.3 percent. Expected lower defense segment sales were offset in part by improved demand in the company’s access equipment and commercial segments.

Consolidated operating income in the third quarter of fiscal 2014 was $174.3 million, or 9 percent of sales, compared to $225.6 million, or 10.2 percent of sales, in the third quarter of fiscal 2013. Fiscal 2014 third quarter adjusted consolidated operating income was $175.3 million, or 9 percent of sales, excluding before-tax OPEB adjustments that netted to $1 million. The decline in adjusted operating income in the third quarter of fiscal 2014 was primarily a result of lower operating income in the company’s defense segment, offset in part by favorable performance in the company’s access equipment and commercial segments.

Access equipment segment sales increased 10.4 percent, to $1.04 billion, for the third quarter of fiscal 2014. The improvement was principally the result of higher unit volumes in North America and Europe and higher pricing, offset in part by the absence of U.S. military telehandler sales under a contract that was completed in the fourth quarter of fiscal 2013. Sales of access equipment, excluding U.S. military telehandler sales in fiscal 2013, rose 13.2 percent in the third quarter. Segment operating income increased 8 percent to $166.8 million, or 16 percent of sales, for the third quarter of fiscal 2014 compared to $154.5 million, or 16.4 percent of sales, in the third quarter of fiscal 2013. Operating income of $166.8 million was also the highest quarterly operating income ever reported by the access equipment segment. The increase in operating income was primarily the result of higher sales volume and the favorable impact of cost reduction initiatives, offset in part by increased new product development spending and higher operating costs.

Commercial segment sales increased 27 percent to $247.3 million in the third quarter of fiscal 2014. The increase in sales was primarily attributable to a nearly 40 percent increase in concrete mixer unit volume. Refuse collection vehicle unit volume also rose due in part to delays in the prior year in the timing of orders from one of the segment’s largest customers. Severe weather in the second quarter of fiscal 2014 contributed to delays in chassis supplier deliveries, which impacted the Company’s ability to ship completed units at the end of the second quarter. Some of the shipments were completed and recognized as revenue in the third quarter of fiscal 2014.

Commercial segment operating income increased 98.6 percent to $19.9 million, or 8 percent of sales, for the third quarter of fiscal 2014 compared to $10 million, or 5.1 percent of sales in the third quarter of fiscal 2013. The increase in operating income was primarily a result of higher sales volume. Production efficiencies also improved during the quarter. In addition, in the third quarter of fiscal 2013, the Company recognized $2.7 million of restructuring-related costs.

Fire & emergency segment sales for the third quarter of fiscal 2014 decreased 8.3 percent to $187.5 million. The decrease in sales primarily reflected lower sales volume as a result of lower international deliveries. Several high volume international orders moved to the fourth quarter of fiscal 2014 because of backups at ports and other logistical issues. Segment operating income decreased 5.2 percent to $6.2 million, or 3.3 percent of sales, for the third quarter of fiscal 2014 compared to $6.5 million, or 3.2 percent of sales in the third quarter of fiscal 2013. The decrease in operating income was primarily the result of lower sales volume, offset in part by lower operating expenses.

Defense segment sales for the third quarter of fiscal 2014 decreased 46.5 percent to $470.7 million. The decrease in sales was expected and was primarily due to lower sales to the U.S. Department of Defense. Sales in the third quarter of the prior year also included more international MRAP All-Terrain Vehicles as international orders and sales tend to be uneven. Segment operating income decreased 77.7 percent to $19.1 million, or 4.1 percent of sales, for the third quarter of fiscal 2014 compared to $85.8 million, or 9.8 percent of sales in the third quarter of fiscal 2013. Excluding OPEB adjustments, adjusted operating income was $20.1 million, or 4.2 percent of sales. The decrease in adjusted operating income was largely due to lower sales volume. In addition, the defense segment recorded favorable contract adjustments related to undefinitized contracts of $5 million in the third quarter of fiscal 2013.

The company is narrowing its estimate range for full-year fiscal 2014 adjusted earnings per share to $3.40 to $3.55. The company expects consolidated sales for fiscal 2014 will be approximately $6.70 billion to $6.75 billion, due to slightly lower expectations in the non-defense segments. The company expects adjusted consolidated operating income to be between $490 million and $505 million, reflecting operating income margins of approximately 14.6 percent in the company’s access equipment segment, operating income margins in the defense segment at the high end of previous expectations and operating income margins in the fire & emergency and commercial segments at the low end of previous expectations.